Jump to content
Premed 101 Forums

Paying Back Principal During Residency?


Recommended Posts

  • Replies 82
  • Created
  • Last Reply

You do not need to, not even during fellowship. But as others have said, I would start to slowly pay it. Also, depending on your aversion of risk and the interest rate of your loan, it would be interesting to open a TFSA and start investing slowly but surely, the goal being to aim for an annual return superior to the interest rate of your loan (i.e. >2.7% if you have the prime rate).

Link to comment
Share on other sites

Thanks everyone for the response - so I owe around $100 K (close to $105 K if we had to be really close) 

 

How much realistically do you think I can actually make a dent in it? On an Alberta salary.  I don't have any other dependents. 

Just looking at the cost of rent, car lease, disability and auto insurance is already so much... 

Link to comment
Share on other sites

It depends on your spending - I'd start by making a budget for yourself and seeing what's left.  I use a budgeting app called Back in Black.  It also depends on your tuition tax credit situation - I have loads, so my income has been boosted, and that helps a lot.

 

For me, I've been paying off about $1000/month - slightly less in PGY1 and slightly more than PGY2.  My call stipends all go into a "rainy day" savings account for Royal College/LMCC/random big expenses.

Link to comment
Share on other sites

Thanks everyone for the response - so I owe around $100 K (close to $105 K if we had to be really close)

 

How much realistically do you think I can actually make a dent in it? On an Alberta salary. I don't have any other dependents.

Just looking at the cost of rent, car lease, disability and auto insurance is already so much...

 

I was $75k in debt at the beginning of residency in July 2015. I am now $7k in debt. But I also had no rent to pay since I'm living in my parents' second property. However, in 2nd year residency and beyond you also have to take into consideration income tax if your tuition credits have run out. Additionally, CMPA dues are another $2k/year and the LMCC2 is $2500. Specialty exams are around $3000 (at least for CCFP). That's another $10k in the first two years of residency.

 

For most people their debt will be paid off within independent practice years.

Link to comment
Share on other sites

It depends on your spending - I'd start by making a budget for yourself and seeing what's left.  I use a budgeting app called Back in Black.  It also depends on your tuition tax credit situation - I have loads, so my income has been boosted, and that helps a lot.

 

For me, I've been paying off about $1000/month - slightly less in PGY1 and slightly more than PGY2.  My call stipends all go into a "rainy day" savings account for Royal College/LMCC/random big expenses.

 

That's great! Thanks so much for the tips and the app...I'll definitely take a look.  

 

How does the tuition credits work and how does it boost income? (Sorry, total newb question and the financial talks aren't very helpful...) 

I was $75k in debt at the beginning of residency in July 2015. I am now $7k in debt. But I also had no rent to pay since I'm living in my parents' second property. However, in 2nd year residency and beyond you also have to take into consideration income tax if your tuition credits have run out.

 

For most people their debt will be paid off within independent practice years.

That's amazing man! Congrats for doing that in all such a short time.  Can I ask approximately how much you tried to contribute each month?

Link to comment
Share on other sites

Tuition tax credits work by taking off income tax you owe by 15% of the value of the tuition paid.

 

If you paid $15k in tuition in the 2015 calendar year, you have  $15k in tuition credits. If you start working in 2016 and are doing taxes for 2015 and you owe the government hypothetically $1000 in income tax, then you can eliminate that with tuition tax credits. $15k in tuition credits = 15k*0.15 = $2,250 you can take off your income tax.

 

Since your income tax is $1000, the tuition tax credit eliminates it and you have 2,250 - 1000 = $1,250 to carry forward to the next year, which is 1250/.15 = $8,333 worth of tuition tax credits (this is the number that would show up in your CRA online carryover tab).

For me I put in nearly all of my money I made biweekly (~$2,000) into the principal payment except for around $200 which I needed for food and gas.

Link to comment
Share on other sites

It helps to try and pay down while in residency. It's much harder to cut your lifestyle/spending habits.

Very hard to do in some cities given the cost of rent. In Toronto, some people's rent is greater than 50% of their Monthly salary (More so for R1). I chose to live at home and put that money to my principle so I've paid down ~20k this year..

Link to comment
Share on other sites

  • 2 weeks later...

Few residents have the option of "living at home", not that I could ever imagine doing it after 25. There's much to be said for being responsible for all your expenses and managing it all yourself. Even if you have more debt. 

 

In any case, if your LOC requires repayment during residency, switch to a different bank. 

Link to comment
Share on other sites

You all make me ashamed at my debt! I'll have to work harder to reduce it...

 

ha - I mean reducing it is useful and I am aggressive about that personally. I think more importantly is just the general habit of constraint that is being developed ha as corny as that sounds. Living well below your means as staff for instance - particularly for a few years when you become staff really sets you up. 

Link to comment
Share on other sites

ha - I mean reducing it is useful and I am aggressive about that personally. I think more importantly is just the general habit of constraint that is being developed ha as corny as that sounds. Living well below your means as staff for instance - particularly for a few years when you become staff really sets you up.

Best advice is to engage a financial planner right away. Physicians are notoriously terrible with finances.

 

Since everyone gets MD management for free, there really isn't a good excuse.

 

Don't worry about other people's lack of debt. Everyone is different based on thier situation. I had a multiple children during residency and my spouse stayed home with them so I paid down exactly zero dollars of debt (it actually grew early on in residency). One of my co-residents parents in law paid off all the debt in one swoop during residency.

Link to comment
Share on other sites

I think more importantly is just the general habit of constraint that is being developed ha as corny as that sounds. Living well below your means as staff for instance - particularly for a few years when you become staff really sets you up. 

 

LOL. I just got a "what the everloving hell are you doing?" email yesterday from my soon-to-be mortgage holder, via my mortgage broker.   Apparently the rate at which I am repaying principal on my LOC has left them rather flummoxed.   Had to send back some soothing words to reassure them that neither my lifestyle nor my cash-flow was being impinged by my aggressive repayments.  The best part was writing: "I can send you the spreadsheets and projections if it would help you..."

 

I hate bankers.

 

Long story short: everybody is different.  I repaid very little during residency, and my net worth actually decreased when I was a fellow. But once you're actually paid reasonable compensation for your work, all of the math changes.

Link to comment
Share on other sites

My financial advisor told me that paying it down aggressively wasn't the most profitable option and that I should be putting all that money into a TFSA that would make more than the interest on my LoC.

However, my own personal hatred of debt and desire to reduce it, as well as my suspicion of investing money, trumped that, so I've continued to pay it down.

Link to comment
Share on other sites

My financial advisor told me that paying it down aggressively wasn't the most profitable option and that I should be putting all that money into a TFSA that would make more than the interest on my LoC.

However, my own personal hatred of debt and desire to reduce it, as well as my suspicion of investing money, trumped that, so I've continued to pay it down.

 

By any chance was your financial advisor all prepped and ready to suggest specific investments to you?   ;)

Link to comment
Share on other sites

My financial advisor told me that paying it down aggressively wasn't the most profitable option and that I should be putting all that money into a TFSA that would make more than the interest on my LoC.

However, my own personal hatred of debt and desire to reduce it, as well as my suspicion of investing money, trumped that, so I've continued to pay it down.

 

Ok let's talk about that a bit - first off this is all personal finance. That means it is PERSONAL. It is about your saving goals and risk tolerance. 

 

it is great to say ha invest in that TFSA right now as the return will be higher than the LOC. Sure - but we have had a very LONG stretch of positive stock market returns and record low interest rates. How sure you are that will continue? If you haven't lived through losing 40% of your stock value then it is hard to convey that yes it can drop and take years to recover. that isn't to say not to invest but if the stock market was always just a perfect way to make money why is the bank even loaning you money at all? Why wouldn't the bank - money experts - just invest instead directly in the stock market to make more than they will make from you? 

 

Truth is NO ONE knows what the market will do except that in the long run it has to do better than loaning the money out (the returns from companies actually is what is paying back the loans - if returns are lower overall than loan payments the entire system collapses). You have to balance things out with your goals and risk levels. 

 

I hate people that just say sure invest with loaned money is right for everyone. Take a lot look how that destroys people every single recession over and over again. 

Link to comment
Share on other sites

Hah.  Well, yes.  But it was MD Financial and I don't think they get kickbacks based on whether you invest or not.

 

kick backs no but you better believe they have performance goals - and their mutual fund fees are huge (I mean they are huge everywhere but they are still huge). You are handing them roughly 1/3 of all your profit over your entire life wit their fees. You will be coughing over to them often around 50-75K a year win or lose with a typical retirement package. There are better options they simply don't like to talk about (knowledge is power......in this case power to take your money). 

 

You should see what happens when you try to leave them if you don't believe they are actively managed to increase sales. 

 

You don't think all these free bags, wonderful talks, constant emails for event after event are for your benefit do you? :) MD is a company and structured along those lines. You are their primary audience and target. In some ways that is fine - they do have excellent knowledge and service in some areas. In other ways they are not good at all. In some ways they are a complete rip off. 

 

Never forget MD and all of these companies are not your friend. Not even close. You have to do your own homework - you have to be educated. The more actively someone is advertising to you the more profit they make on a sale. 

Link to comment
Share on other sites

Honestly, I was pretty against it, so I don't really remember.

 

I remember them telling me something about having options depending on risk tolerance and they showed me a breakdown.

 

But I just didn't feel comfortable with the idea of investing money when I have so little, and so much debt.

 

He then told me that if I didn't make money on it, it would be good "practice" for when I have more money and need to invest it.

 

I think I did open a TFSA but I never put anything into it.  I thought about it, but I didn't feel comfortable with my understanding of what to expect and why I should do it.  So I didn't do it.

Link to comment
Share on other sites

LOL. I just got a "what the everloving hell are you doing?" email yesterday from my soon-to-be mortgage holder, via my mortgage broker.   Apparently the rate at which I am repaying principal on my LOC has left them rather flummoxed.   Had to send back some soothing words to reassure them that neither my lifestyle nor my cash-flow was being impinged by my aggressive repayments.  The best part was writing: "I can send you the spreadsheets and projections if it would help you..."

 

I hate bankers.

 

Long story short: everybody is different.  I repaid very little during residency, and my net worth actually decreased when I was a fellow. But once you're actually paid reasonable compensation for your work, all of the math changes.

 

ha awesome. 

 

I get the hate ha. Personally I feel that I understand where they are coming from. You can use them as an important resource, but you have to be on their level with knowledge. How does that go - they need to know you know that they know you know what are doing. That way they don't try to pull anything. 

 

Personally I think I am coming up on 70K paid off in almost 4 years here (not including unrealised profit on the properties). I hope to destroy in practise in about a year all remaining personal debit (I will use extensively debit financing in my real estate investing though forever - I mean that i show that works). This is all about whatever your goals are - it makes logical sense as well to just wait to practise in many ways. Point is to have a plan you are comfortable with. 

Link to comment
Share on other sites

Honestly, I was pretty against it, so I don't really remember.

 

I remember them telling me something about having options depending on risk tolerance and they showed me a breakdown.

 

But I just didn't feel comfortable with the idea of investing money when I have so little, and so much debt.

 

He then told me that if I didn't make money on it, it would be good "practice" for when I have more money and need to invest it.

 

I think I did open a TFSA but I never put anything into it.  I thought about it, but I didn't feel comfortable with my understanding of what to expect and why I should do it.  So I didn't do it.

 

Ok no problem - again I was just curious :) I would love to break down one of their plans. They are always strangely complicated. 

 

For you I would say you made the right choice. 

 

Oh and investing is not a game - practising implies you are learning some skill. What skill exactly was he/she saying you were developing there? 

 

ha - these sales people. The advanced training they all having in convincing doctors to do what they want. it is amazing how systematic and polished it all is. Just remember it is like going to a used car lot every time you talk to them. That is probably the right mind set :)

Link to comment
Share on other sites

Archived

This topic is now archived and is closed to further replies.


×
×
  • Create New...